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With the search for a better standard of living and an improvement in technology, a new currency has been developed called cryptocurrency. Even though it has become popular in the 21st century, not many people know what it really is apart from the obvious fact that it is a digital currency and yet they use it. This article will explore the origin of bitcoin and its importance.
What is the origin of bitcoin?
Not many people know this but cryptocurrencies emerged as a side product of another person’s invention. Satoshi Nakamoto is the inventor of bitcoin. His original intention was not to create a currency. He wanted to create a peer to peer electronic cash system.
Before Satoshi successfully created bitcoin, many people tried in the past to create a digital currency but failed. They failed because to build a digital cash system, you need a central entity and it seemed impossible then but Satoshi managed to do it without a central system.
In order to create a digital cash you need a payment network system with accounts, balances and transactions. Double spending is a major problem that every payment network has to solve. To solve this it requires a central server that keeps records of balances. In a decentralized network like the bitcoin a server is not needed. Rather every single peer in the network needs to have a list of all transactions to check if future transactions are valid or an attempt to double spend has been made.
But keeping of the consensus by each entity seems tricky because if any of the peers in the network were to disagree about anything at all, everything will be broken. To correct this requires a central authority to impose the correct state of balances. But is it possible to achieve the consensus without a central authority? Nobody believed it was possible until Satoshi proved it was. He achieved a consensus without a central authority.
What is cryptocurrency?
It is simply a limited number of entries in a database that no one can alter without meeting certain conditions. Take money in your bank account for example. It is nothing more than entries in a database that you can only alter under certain conditions.
What lies behind the mining process ?
In the database of cryptocurrencies like the bitcoin, every peer in the network of peers keeps a complete record of all transactions. A transaction is basically a file that says that Mr. K gave X number of bitcoins to Mr. B and it’s signed by Mr. K’s private key. After the transaction is signed, it is broadcasted throughout the network from peer to peer. After some time the transaction gets confirmed. Without confirmation, a transaction can be forged. The confirmation sets the transaction in stone. Once a transaction is confirmed it becomes a part of the record of historical transaction called the block chain.
Confirmation can only be done by miners. That is their sole job description is the cryptocurrency network. They stamp the transactions to legitimize them in the network and it becomes a part of the block chain. For a job done, miners get a token of the cryptocurrency.
Who are miners?
Principally, anyone can be a miner. Since a decentralized network lacks the authority to delegate this task, cryptocurrency needs some kind of mechanism that can be used to prevent people from abusing it. Imagine thousands of peers and spreads fogged transactions by someone, the cryptocurrency system will break down.
In other to prevent this, Satoshi fixed a rule that in order for miners to qualify, have to find a hash – that will connect the new block with the processor. The name for this is Proof-of-Work. After the miners have found the solution, they can build a block ad add it to the existing block chain. He gets a specific number of bitcoins as an incentive. Bitcoins are created only when miners are able to solve a cryptogenic puzzle.
Properties of the transaction
After a transaction has been confirmed, it cannot be reversed. The whole process is irreversible. And there is nothing anyone can do to change that. No amount of knowledge about cryptocurrency can help you get your money back once you make a mistake in your transaction process. The only way to get your cryptocurrency back after making a mistake in a transaction is for the receiver of the money to send it back to you.
There is no real connection between transactions or accounts and any real world identities. The bitcoin addresses are randomly generated characters. Though it is possible to make analysis of the transaction flow, it is not possible to make any connection between the identities of the users to those addresses.
Despite the fact that cryptocurrencies are relatively new, its transaction process is rather fast and it has been accepted globally. The transaction can be confirmed in a couple of minutes.
- Cryptographic -encryption protected
The cryptocurrency funds are extremely protected with in a public key cryptography system. Only the owner can send cryptocurrencies. Bitcoin addresses are more secure than any place on earth.
- Use without permission
There is no one to answer to or seek permission from concerning the use of cryptocurrency. It’s just a free app that anyone can download. After downloading it you can start sending cryptocurrencies or receiving them.
There is no any central authority like central bank or other regulatory institution which acts as an intermediary in the transaction
As the name implies cryptocurrency, which means it’s a form of a currency. So what are the properties that makes it unique?
- No debt bearer
The fiat- money in your bank account unfortunately is a representation of debt. Bitcoin on the other hand represents themselves.
- Controlled supply
There is a limit on the token supply. Bitcoin for example, decreases in supply with time and it will reach its final set number in the year 2140. All cryptocurrencies control the token supply by a schedule written in a form of a computer code.
It is true to state that bitcoin has a revolutionary impact on the world due to its unique properties. It is a permissionless currency, irreversible, and pseudonymous in nature. With the daily increasing number of bitcoin users one can say that it’s an attack in a way, on the control that banks and governments use to have over the transaction of money on their citizens.
Most famous cryptocurrency
Though bitcoin is the most famous amongst the cryptocurrencies it is not the only cryptocurrency that investors keep an eye on. Below are the most popular amongst the cryptocurrencies.
Bitcoin as said earlier on is the most popular and widely used amongst the cryptocurrencies. It can be compared as the digital gold standard. It is already being used globally as a form of payment. Its transaction volume is about 200,000 on daily basis.
It is gradually becoming as famous as the bitcoin. It is popularly known amongst traders and investors. It can also be used to process transactions but complex ones. Its flexibility makes it a perfect instrument for blockchain application.
It can be said to be the most hated or less popular amongst the cryptocurrencies. It is mostly used as a network to process IOUs than a cryptocurrency in itself. It serves as more of a token to protect the network against spam than as a medium to store and exchange value.
It was actually one of the first to be created after bitcoin. It’s faster than the bitcoin and has a much larger token amount and a new mining algorithm. It was fashioned to be the little brother to bitcoin. It helped to create other cryptocurrencies because litecoin’s code base was used to create them. Though it failed to find an actual use, it is still actively being developed as a backup to replace bitcoin in case bitcoin fails.
It is an undeniable fact that, the creation and use of cryptocurrency has trading in so many ways. Amongst them is the fact that it is easily accesiible and decentralized. It also makes helps to make payment transactons very fast. But it also serves as a threat to the banks nd the governments as they use to have some level of control over the transaction of money by their citizens. Am anticipating to know how the future will be. Wheather these two entities or not